Excerpt: - .....investments' and provides that where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the ito, satisfactory, the value of the investments may be deemed to be the income of the assessee of such, financial year. section 69a provides for 'unexplained money' and it provides that where in any financial year the assessee is found to be the owner of certain amount, then how that would be dealt with. it is more or less in the same lines as section 69. but there is a marked distinction that if some.....

Judgment:

Sabyasachi Mukharji, J.

1. In this application under Section 256(1) of the I.T. Act, 1961, the Tribunal has referred to this court the following two questions:

'1. Whether, on the facts and in the circumstances of the case, and in the light of Section 68 of the Income-tax Act, 1961, the Tribunal is right in holding that the sums introduced in the books of the assessee for the year ending 31st December, 1961, but credited before 1st April, 1961 (representing the assessee's income from undisclosed sources), cannot be brought to tax for the assessment year 1962-63 ?

(2) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 68 of the Income-tax Act, 1961, the Tribunal is right in holding that the cash credits in the books of the assessee for the previous year ending 31st December, 1961 (relevant to the assessment year 1962-63) and representing the assessee's income from undisclosed sources, but falling within the financial year 1960-61 having not been brought to tax in the assessment year 1961-62 could not be brought to tax for the assessment year 1962-63 ?'

2. There is a slight typographical mistake in question No. 1, as it appears, in the dates. It should be the books of the assessee for the year ending 31st December, 1961, and not '31st January, 1961', and there is a similar mistake in question No. 2.

3. The assessment year under consideration is 1962-63. The assessee is a private limited company, which carried on business in purchase and sale of iron goods. The accounting period under consideration according to which the books of account were maintained by the assessee is the year ended 31st December, 1961. On going through the books of accounts relating to the accounting period ended 31st December, 1961, the ITO noticed credits in eleven different accounts. He proceeded to enquire into the credits and eventually came to the conclusion that the assessee was not able to tender satisfactory explanation. The relevant accounts considered have been detailed in the order of assessment. Eventually, the ITO brought to tax an amount of Rs. 6,44,744, which was the aggregate of the peak credits as computed by him with reference to the credits and debits as appearing in such of the eleven accounts considered separately.

4. Being aggrieved, the assessee went up in appeal before the AAC. The AAC accepted the explanation of the assessee as to the credits being genuine in all except three of the accounts. The accounts in respect of which the AAC did not accept the explanations of the assessee and the peak credits as worked out by the ITO in such accounts for the period 1st January, 1961, to 31st December, 1961, are as under :

Name of the account in respect of which the explanation ofthe assessee wasnot accepted by the Appellate Asst. Commissioner.Peak credit as worked out by the Income-tax Officer

5. The assessee had urged before the AAC that credits which fell in the financial year 1960-61, that is, in the period 1st April, 1960, to 31st March, 1961, could not be subjected to assessment in the assessment year 1962-63, now under consideration. The plea was apparently taken on the basis that in respect of income from undisclosed sources, the financial year had to be taken as the previous year up to the assessment year 1961-62 and thus credits in the financial year 1960-61 could be considered only in the assessment year 1961-62. This contention found favour with the AAC. He observed that on the basis of the overall picture of return filed by the assessee, the highest peak credit (in the period 1st January, 1961, to 31st December, 1961) would be Rs. 3,57,707 and the highest peak up to 31st March, 1961, was Rs. 3,01,779 and the difference was of Rs. 56,928. It is noted by the Tribunal that there is an error in the subtraction of Rs. 1,000. The AAC also accepted the pleas of the assessee that the three accounts should be considered together and he held that the peak credit of Rs. 55,928 alone (subject to verification by the ITO) would be assessable in the assessment year 1962-63.

6. Being aggrieved, the Revenue went up in appeal before the Tribunal and placed reliance on the provisions of Section 68 of the I.T. Act, 1961, and it was argued that all the credits appearing in the books of account for the calendar year 1961 were assessable only in the assessment year 1962-63. According to the Revenue, in view of the express provisions of Section 68, the decision of the AAC was clearly wrong.

7. This plea was opposed by the assessee, and in support of the finding of the AAC, on behalf of the assessee, reliance was placed on the decision of the Supreme Court in the case of Baladin Ram v. CIT : [1969]71ITR427(SC) , and the decision of the Calcutta High Court in the case of Keshtra Mohan Roy v. ITO : [1971]81ITR15(Cal) . The submission on behalf of the assessee, in brief, was that the credits which occurred in the financial year 1961-62 could not be considered in the assessment year 1962-63.

8. The Tribunal was of the view that the entire credits were considered by the ITO as unexplained and assessed under the head 'Other sources' and though such credits occurred in the accounts for the calendar year ended on 31st December, 1961, the dates of some of the credits fell priorto 1st April, 1961, i. e., the dates of some of the credits fell in the financial year 1960-61. The Tribunal referred also to the decision of the Calcutta High Court and concluded that the pronouncement was authority for the view that for the assessment year 1961-62, what could be considered for the purposes of assessment would, if the facts otherwise warranted, include credits which fell in the financial year 1960-61, though the credits might have fallen outside the accounting period, i. e., the calendar year 1960, relevant to the assessment year 1961-62, for which books were maintained by the assessee. The Tribunal noticed the provisions of Section 68 of the I.T. Act, 1961, and expressed the view that income-tax was an annual tax and the law to be applied for any assessment year was the law which was applicable on the first day of April, of a particular assessment year. In support of this proposition, reliance was placed by the Tribunal on certain observations of the Supreme Court in the case of CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) . Section 68, according to the Tribunal, appears in the I.T. Act, 1961, and the I.T. Act, 1961, was to have effect from 1st April, 1962. There is nothing to show that the provisions of Section 68 would have any further retrospective effect and as such, the law as prevalent as on 1st April, 1961, according to the Tribunal, had to be considered as not incorporated the provisions of Section 68 of the I.T. Act, 1961. As on 1st April, 1961, the Tribunal was of the view, the law was that in respect of income from undisclosed sources, the financial year was the previous year and, therefore, if credits occurred in the financial year 1960-61, which were considered as income from undisclosed sources on merits, such income would, for the first time, become assessable in the assessment year 1961-62. The Tribunal referred to certain observations of the Supreme Court in the case of Laxmipat Singhania v. CIT : [1969]72ITR291(SC) . In conclusion the Tribunal was of the view that since the income-tax was an annual tax, both under the provisions of the Indian I.T. Act, 1922, as well as under the provisions of the I.T. Act, 1961, income was to be taxed in the earliest assessment year in which it became assessable. If for any reason income had not been brought to tax in the earliest assessment year in which income became assessable to tax, the Tribunal was of the view that such income could not he brought to tax in a later year. According to the ITO, as far as this assessment year was concerned, and even after the decision of the AAC, the credits in the three accounts represented income from undisclosed sources and in respect of credits prior to 1st April, 1960, the earliest assessment year in which such credits could be considered would not be the assessment year now under consideration, i. e., 1962-63. In that view, the Tribunal was of the opinion that the AAC was justified in the view that he had taken. Thus, the Tribunal upheld the order of the AAC.

9. From the aforesaid decision of the Tribunal, the questions as indicatedabove have been referred to this court.

10. We have noticed the relevant facts. In order to appreciate thequestions, it would be necessary to refer to certain provisions of the Act. Under Section 2(9), 'assessment year' means the period of twelve months commencing on the first day of April, every year. 'Previous year' is defined under Section 3 of the 1961 Act, as the financial year immediately preceding the assessment year, or if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, twelve months ending on such date, and there are some other categories with which we are not concerned. Section 68, upon which this case has been argued, deals with 'cash credits' and provides as follows :

'Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.'

11. Section 69 deals with 'unexplained investments' and provides that where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the ITO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such, financial year. Section 69A provides for 'unexplained money' and it provides that where in any financial year the assessee is found to be the owner of certain amount, then how that would be dealt with. It is more or less in the same lines as Section 69. But there is a marked distinction that if some amount is found in the books of the assessee, that would be assessed under the terms of Section 68 as the income of the previous year. We have noticed the assessment year. For the instant case, the assessment year is 1962-63, and the previous year, according to the definition in the 1961 Act, would be the period from 1st January, 1961, to 31st December, 1961. This sum, as appears from the findings of the Tribunal, was found to be credited in the books of account, for which no satisfactory explanation has been offered by the assessee. If that is so, that would come within the provisions of Section 68 of the Act. This view is further clarified by the provisions of Section 297(2)(b) of the 1961 Act, which provides that where a return of income is filed after the commencement of 1961 Act, otherwise than in pursuance of a noticeunder Section 34 of the repealed Act by any person for the assessment year ending on the 31st day of March, 1962, or any earlier year, the assessment of that person for that year shall be made in accordance with the procedure specified in the 1961 Act.

12. The Supreme Court in the case of Baladin Ram v. CIT : [1969]71ITR427(SC) , observed that it is now well settled that the only possible way in which income from an undisclosed source could be assessed or reassessed was to make the assessment on the basis that the previous year for such an income would be the ordinary financial year. Even under the provisions embodied in Section 68 of the I.T. Act, 1961, it was only when any amount was found credited in the books of the assessee for any previous year that the section would apply, and the amount so credited might be charged to tax as the income of that previous year, if the assessee offered no explanation or the explanation offered by him was not satisfactory. On the other hand, if the undisclosed income was found to be from some unknown source or the amount represented some concealed income which was not credited in his books, the position would probably not be different from what was laid down when the 1922 Act was in force. The Supreme Court then explained the position thus at p. 432 of the report as follows :

'It is, however, obvious that even under the provisions embodied under the new Act it is only when any amount is found credited in the books of an assessee that the section will apply. On the other hand, if the undisclosed income was found to be from some. unknown source or the amount represents some concealed income which is not credited in his books the position would probably not be different from what was laid down in the various cases decided when the Act was in force.'

13. In the facts of the instant case, it is important to bear in mind that this sum was being taxed not necessarily as an income from undisclosed source, but as an amount entered in the books of account of the assessee for which no explanation or satisfactory explanation could be offered by the assessee. This view of the Supreme Court was more or less reiterated by the Division Bench of the Patna High Court in the case of Hardwarmal Onkarmal v. CIT : [1976]102ITR779(Patna) , Untwalia C.J, observed as follows:

'There was no provision in the Indian Income-tax Act, 1922, corresponding to Section 68 of the Act. Section 68, however, was enacted, as it appears, mainly to give a statutory recognition to the principles of law laid down by the various authorities making a departure in regard to two matters only, as pointed out by the learned authors, Kanga and Palkhivala, in The Law and Practice of Income Tax, 6th Edition, Volume 1, page 537. Previously, a dispute had arisen as to whether a cash creditfound in a particular accounting year of the assessee could be taken to be the income of that accounting year or whether it should be taken to be of a separate previous year according to the financial year. This matter has been set at rest by Section 68 which says that in all events the income of the assessee has to be treated of that previous year in which the cash credit has been found. Another dispute which had cropped up in various cases was as to whether the amounts found deposited on the very first day of the accounting year could be treated as the secreted income of the assessee of that accounting year. That matter has also been set at rest by Section 68. But on the main question the argument advanced on behalf of the assessee before us that the section has not brought about any change in law seems to be correct. Section 68 reads as follows:

'Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.' If the assessee offers no explanation for the sum found credited in his books, the sum so credited has got to be added to the income of the assessee. To that extent there is no difficulty in saying that previously the law was exactly the same. But if an explanation is offered which, in the opinion of the Income-tax Officer, is not satisfactory then also Section 68 provides that the cash credit can be added to the income of the assessee. In this regard also, if I may say so, a departure does not seem to have been made from the law laid down authoritatively by the Supreme Court in various decisions, The matter ultimately comes to the Tribunal. The question of law is said to be arising out of the order of the Tribunal and it has to be considered whether the explanation has been rejected as being unsatisfactory on materials or evidence or without there being any materials or evidence to justify the rejection. It can also be examined as to whether the rejection is perverse. But in this case the findings of the Tribunal can be appreciated in the background of the findings recorded by the departmental authorities. In this background the Tribunal committed no error of law in saying that when the assessee was unable to explain satisfactorily, the addition was justified in view of Section 68 of the Act; the Income-tax Officer was justified in adding the sums to the assessee's income under Section 68 of the Act. In my opinion, judging the order of the Tribunal in the background of the facts recorded by the Income-tax Officer and the Appellate Assistant Commissioner, it is difficult to accept the argumentput forward on behalf of the assessee that the decision of the Tribunal is perverse or is based upon no evidence or material. On the other hand, I am inclined to think that the decision is reasonable, correct and perfectly warranted by the facts and circumstances of this case. The assessee could not persuade the Tribunal to record a finding in its favour that the money found deposited in its account books was actually the money brought by the partners and deposited.'

14. The distinction between the amount found in the account books and an amount not found in the account books, for the purpose of the assesssability under the 1961 Act, was emphasised by the Rajasthan High Court in the case of CIT v. Lakshman Swaroop Gupta & Brothers ; at pp. 226 and 227 of the report.

15. Our attention was drawn to a decision of the Madhya Pradesh High Court in the case of CIT v. Dharamchand Anandkumar : [1981]128ITR219(MP) , as well as certain observations of this court in the case of Sikri & Co. Pvt. Ltd. v. CIT : [1977]106ITR682(Cal) . But these decisions, in our opinion, do not deal with the actual problem with which we are confronted. Therefore, it is not necessary to discuss those decisions in greater detail. In that view of the matter, we are of the opinion that the Tribunal was in error in coming to the conclusion in the manner it did.

16. In that view of the matter, we answer the first question by saying that, on the facts and in the circumstances of the case, and in the light of Section 68 of the I.T, Act, 1961, the Tribunal was in error in holding that the sums found in the books of the assessee for the year ending 31st December, 1961, could not be brought to tax for the assessment year 1962-63. Similarly, we answer the second question by saying that, on the facts and in the circumstances of the case, and on a correct interpretation of Section 68 of the I.T. Act, 1961, the Tribunal was in error in holding that the cash credits in the books of the assessee for the previous year ending on 31st December, 1961, could not be brought to tax for the assessment year 1962-63. In our opinion, we must add that the moment a sum is found credited in the books for which no explanation is offered by the assessee or the explanation offered by the assessee is unsatisfactory whether the credits introduced in the assessee's books represented the income of the assessee from undisclosed sources in the earlier year could hot be brought to tax is not relevant and germane to these questions. Thus, we answer the questions as indicated above and in favour of the Revenue.

17. In the facts and circumstances of the case, the parties will pay and bear their own costs.